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Second Circuit Upholds SEC’s Denial Of Whistleblower Award In Connection With FCPA Enforcement Action


In this opinion, the Second Circuit recently upheld the SEC’s denial of a whistleblower award in connection with a Foreign Corrupt Practices Act enforcement action.

As framed  in the Court’s opinion: “John Doe petitions for review of an order of the Securities and Exchange Commission (“SEC”) denying him a whistleblower award. […] In general, federal law directs the SEC to pay a monetary award to a whistleblower when that whistleblower “voluntarily provided original information to the Commission that led to the successful enforcement” of “any judicial or administrative action brought by the Commission under the securities laws that results in monetary sanctions exceeding $1,000,000.” But the SEC may not make an award “to any whistleblower who is convicted of a criminal violation related to the judicial or administrative action for which the whistleblower otherwise could receive an award.”

As to the relevant background and disputed issues, the Court noted:

“John Doe is a whistleblower. He provided information to the SEC that assisted in a successful agency enforcement action with respect to an international bribery scheme (the “Covered Action”). After the SEC posted a notice on its website about the Covered Action, Doe timely filed an application for a whistleblower award … in connection with both the Covered Action and a related action (the “Related Action”). By that point, however, Doe himself had pleaded guilty to bribery charges. A court had accepted Doe’s guilty plea but had not yet sentenced him. Because of the accepted guilty plea, the SEC determined that Doe had been “convicted of a criminal violation related to” the bribery scheme that was at issue in the Covered Action and the Related Action. The SEC issued a preliminary determination recommending the denial of Doe’s award application. Doe contested the preliminary determination, and a few months later the SEC issued its final order denying a whistleblower award to Doe.

The “determination … whether … to make [a whistleblower] award[]” is at “the discretion of the Commission.” We review the determination of the SEC as to whether to make a whistleblower award for abuse of discretion and—to the extent the agency makes findings of fact—for substantial evidence.

Doe challenges the SEC’s interpretation of two key terms […]: “convicted” and “related to.” He argues that he was not “convicted” and that his criminal conduct was not “related to” the bribery scheme at issue in the Covered and Related Actions. He additionally argues that the SEC did not adequately explain its reasoning in denying the whistleblower award. We disagree. Doe forfeited his challenge to the SEC’s interpretation of “convicted,” which in any event lacks merit, and the SEC properly interpreted and applied the “related to” provision of the statute. The agency adequately explained its reasoning and supported its findings with substantial evidence. We deny Doe’s petition for review.”

As to the first issue, whether Doe was “convicted,” the Court found that “Doe’s failure to comply with the administrative process for raising the argument before the agency prevents him from raising it for the first time on appeal.” Nevertheless, the Court opined (internal citations omitted):

“Even if Doe had not forfeited his argument about the term “convicted,” the argument would fail. The agency did not err in adhering to its view that “there is no reason for ascribing a different meaning to the word ‘convicted’ in the Exchange Act to the meaning given to that term in the Advisers Act.” Doe contends that a person may be considered “convicted” only after a sentence is imposed, but that is not correct.”

As to the second issue, whether the bribery charges Doe pleaded guilty to were “related” to the Covered and Related Actions, the Court held (certain internal citations omitted):

“A whistleblower is ineligible … for an award from the SEC if he was “convicted of a criminal violation related to the judicial or administrative action for which the whistleblower otherwise could receive an award.” The SEC and Doe understand the term “related to” differently. The SEC interprets the term to mean that “the conduct underlying the criminal conviction must be connected to or stand in some relation to the Covered Action.” Doe suggests that the term requires the whistleblower to have been “a part of the conduct underlying the … enforcement action” and to have known about the conduct during its occurrence.

We agree with the SEC. In Morales v. Trans World Airlines, Inc., the Supreme Court said the ordinary meaning of the term “relating to” is “a broad one.” The Court explained that this meaning is “to stand in some relation; to have bearing or concern; to pertain; refer; to bring into association with or connection with.” Our court has also noted that “[t]he term ‘related to’ is typically defined more broadly” than a term such as “arising out of.”

The ordinary meaning of “related to” encompasses the connection between Doe’s bribery charges and the bribery scheme underlying the Covered and Related Actions. Doe pleaded guilty to facilitating bribery payments that came from the same principal briber, targeted government officials in the same country, and sought benefits in the same industry as the scheme charged in the Covered and Related Actions. The SEC did not abuse its discretion when it determined that Doe’s criminal conduct was “related to” the Covered and Related Actions.”

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